HDFC Life maxes its bets to become No. 1 private insurer

CLOSE on the heels of HDFC Ergo announcing its intention to buy out L&T General Insurance in early June, HDFC Standard Life on Friday said it would explore the acquisition of Max Life Insurance. A merger between the two would create the country’s largest private sector life insurance player with a combined market share of 24%, toppling ICICI Prudential Life Insurance.

“We have decided to talk to the Max Group to see whether a merger is possible,” HDFC chairman Deepak Parekh told the media, adding that the new entity would be automatically listed. He said there would be no open offer because the merger was being pursued as an amalgamation through a scheme of arrangement. “No cash will change hands, there will merely be an exchange of shares,” Parekh explained. The swap ratio for the merger is to yet to be decided.

Max Financial Services is a listed company with a 69% share in Max Life insurance. Analjit Singh, chairman, Max Financial, explained that first the two companies will merge and subsequently, Max Financial Services will merge with HDFC Life.

“The IPO process had already started for HDFC Life but that has been put on hold for the moment,” Parekh said. He added that HDFC Life could increase its stake in the new entity at a later stage through a creeping acquisition.

The combined embedded value of the two insurers is Rs 15,822 crore. Parekh observed that the two players have complementary strengths and strong bancassurance channels. Parekh added that consolidation in the insurance sector would create large companies that would drive economies of scale and benefit consumers. He said new business premium for the industry was expected to grow at 15% annually over the next five years while renewal premiums are estimated to grow at 10% annually.

Currently, there are 23 life insurance companies and the top four players command a market share of 65%. According to Nomura, ICICI Prudential is currently the market leader in the private sector with a share of 23.10% at the end of March 2015. The combined market share of HDFC Life and Max Life would be an estimated 24.7% while the total assets would be over Rs 1 lakh crore.

The boards of HDFC Standard Life Insurance, Max Financial Services and Max Life Insurance son Friday approved entering into confidentiality, exclusivity and standstill agreements to evaluate a potential merger. a joint venture between HDFC and Standard Life of the UK.

Life Insurance Corporation of India commanded the lion’s share of the total market at 73.05% in 201415, according to the annual report of the Insurance Regulatory and Development Authority of India.

In the last financial year, HDFC Life saw its new business premium at Rs 6,487.66 crore, according to data from Life Insurance Council. HDFC Life reported a profit after tax of Rs 818 crore for FY16 against Rs 786 crore in the previous year. Max Financial Services owns 68.01% stake in Max Life Insurance with the remaining share with Mitsui Sumitomo Insurance and Axis Bank. Currently, HDFC holds 61.63% and Standard Life (Mauritius Holdings) 2006 holds 35% in HDFC Life, with the rest held by others.